Another dose of money-printing is on the cards: 'King factor' steers MPC towards more QE

The Bank of England has kept the base rate at the historic low of 0.5 per cent since March 2009, which is now nearly four years

Odds are shortening on another burst of money creation from the Bank of England this week to jolt the economy into life.

Three members of the nine-strong Monetary Policy Committee, including the Governor, Sir Mervyn King, voted at last month’s meeting for an extension of the Bank’s quantitative easing scheme, while a fourth, Deputy Governor Paul Tucker, has since said he is open to the idea.

Tucker also last week floated the idea of ‘negative interest rates’, where the Bank would actually charge banks for holding their reserves, encouraging them to lend and consumers to spend.

The notion has since been played down by the Bank, which insists there are no plans or proposals for such a radical step.

By contrast, the chance of another £25billion of money creation has risen sharply.

Victoria Clarke, economist at
Investec Bank, said: ‘The “Mervyn factor” has given this week’s meeting a
tilt to more quantitative easing.

‘In
the past, soon after being outvoted at one meeting the Governor manages
to sway the committee. It has made it a bit of a close call.’

The prospect of negative interest rates was raised by Paul Tucker as an option to encourage banks to lend to small and
medium-sized firms.

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He said the dramatic move had been discussed at this month’s
rate-setting meeting as an option to help fuel economic growth.

Speaking to MPs on the Treasury
Committee, Mr Tucker said: 'This would be an extraordinary thing to do
and it needs to be thought through carefully.

'I hope we will think about whether there are constraints to setting negative interest rates.’

He
also suggested more bond-buying through the quantitative easing scheme
was on the cards and added that the pound may need to weaken more - a
comment that pushed sterling to near 2.5-year lows against the dollar.

The rock-bottom base rate of 0.5 per cent and rounds of cash injections in the form of 'quantitative easing' have not stopped the economy slipping back into negative growth.

However, one of the BoE's other unconventional measures, the Funding for Lending Scheme appears to be resulting in cheaper and more available mortgages - its effect on banks' lending to businesses is less clear.

The Funding for Lending scheme aims to push at least £80bn through banks and building societies to homeowners, borrowers and businesses. The cost of accessing funds for four years is just 0.75 per cent and institutions have incentives to take on more funding and lend it out.

The biggest benefits from Funding for Lending have been seen by borrowers able to put down substantial deposits, who have seen best buy mortgage rates drop to below 2 per cent for two-year fixes and 3 per cent for five-year fixes. Rates have also fallen for those with smaller deposits and first-time buyers.

Savers, however, have seen their returns slashed, as banks and building societies have less need to offer good deals to pull them in.